Telcos chalk out strategies for India's largest spectrum auction

The largest telecom spectrum auction is about to begin. The airwaves on sale - 2354.55 megahertz (MHz) - are the highest that the government has sold in the telecom auction process that started in 2010.  The government aims to raise some Rs 5.66 lakh crore from auctions which will kick off on October 1. Spectrum across all bands - 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz - will be up for sale. For the first time, 700 MHz, the most efficient band to provide 4G services, is on the block.

The existing players - Bharti Airtel, Vodafone India and Idea Cellular - are feeling the heat after Reliance Jio's 4G launch. Jio has to ensure excellent service quality so that people can migrate to its network. It means that Jio might acquire more spectrum and fill gaps in its network. It is already battling resistance from existing operators in releasing sufficient interconnect facility, leading to high call failures for Jio customers making calls to other networks. But as a telecom analyst points out that the telecom sector is about spectrum and interconnection. The upcoming auctions, therefore, will be a defining period for every telecom operator. Here's a rundown of the possible game plan of different operators.

1. Bharti Airtel - The largest telecom operator with over 255 million wireless subscribers, Airtel has plenty more at stake than any other player. Over the past one year, it has acquired 4G spectrum (inorganically) from Aircel (in seven circles), Videocon Telecom (in six circles), and Augere (one circle). With this, the telco has 1800 MHz in 22 circles and 2300 MHz in 17 circles, which means that it has a pan-India 4G presence. Besides, it has 3G spectrum in 21 circles. Bharti has enough spectrum to sit quietly through the auctions but it can ill-afford to ignore the moves of others, especially Jio. According to reports, Jio has deposited Rs 6,500 crore of EMD (earnest money deposit) in the upcoming auctions, the highest among all operators. Airtel, on the other hand, has deposited Rs 1,980 crore. EMD shows the level of interest of a telecom operator.

A vast majority of analyst says that Airtel is likely to bid for 900 MHz, 1800 MHz, and 2100 MHz to further strengthen its 3G and 4G footprint. Telcos like Airtel have said that the reserve price for 700 MHz is prohibitive. But nothing can be ruled out. "Bharti…[has] the luxury of not needing spectrum. They can bid selectively this year and afford to sit out entirely. [It has] eye on the more attractive 700MHz band and hoping it is reauctioned next year at a lower reserve price," says a Bernstein report in April.

2. Reliance Jio - The $22.56 billion start-up is busy acquiring customers. There are reports that Jio has crossed 10 million customers, fast inching towards its target of 100 million. Since the launch, Jio has upset the sector by offering free voice calls for lifetime. Its spectrum holding for 4G - 2300 MHz in 22 circles, 1800 MHz in 18 circles and 800 MHz in 18 circles (including sharing and trading pact with Reliance Communications) - is far more than other operators. That's because it is entirely focused on 4G technology, unlike others who offer 2G, 3G and 4G simultaneously.

With a fast-growing customer base, Jio will need more spectrum to decongest its network, and provide seamless experience. It's expected that Jio will go for 700 MHz in order to improve its indoor coverage. Ever since Reliance Industries bought BWA spectrum (2300 MHz) in 2010, it has been acquiring more spectrum in lower frequencies (1800 MHz and 800 MHz) to improve its indoor coverage. With 700 MHz under its belt, Jio can take its lead to the next level. But it's entirely speculative.

3. Vodafone India - Vodafone was in the news recently after the company announced that it has received the largest FDI (foreign direct investment) of Rs 47,700 crore from its parent Vodafone Group. The company said that the funds will be used to pay off debt (Rs 81,500 crore in 2015/16) and "right-sizing" its spectrum. Vodafone is in desperate need of spectrum to stay relevant in the market.

Its 4G spectrum holding - in nine circles - puts the company in the weakest spot among other major operators. Analysts say that a substantial amount of the fresh equity infusion might go towards spectrum acquisition, especially in bands such as 1800 MHz, 2100 MHz and 2300 MHz. The telco recently deposited Rs 2,740 crore EMD with department of telecom. Experts say that the paltry amount doesn't give enough flexibility to Vodafone to react to the strategy of other operators.

4. Idea Cellular - The position of Idea Cellular is not much different from Vodafone. Idea, like Vodafone, was late to realize that the market is shifting towards 4G technology. It was betting big on 3G even at a time when there were clear signs of market moving towards 4G. As a result, the company missed the 4G bus. It today holds 4G spectrum in just 10 circles. The 3G presence is better but that doesn't make Idea an attractive choice for consumers who are keen on high-speed wireless broadband.

Idea can still make up for its mistakes by gobbling up 4G spectrum in auctions. It's likely that Idea will buy spectrum in 1800 MHz and 2300 MHz bands to build a decent 4G presence and retain its customers with a mix of 4G and 3G service offerings. Smaller players have already been acquired or merged with larger entities; the current auction may just be the only hope for Idea to beef up its spectrum holding.